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Trading Plan for February 2, 2011



February 02, 2011 – Comments (0) | RELATED TICKERS: SPY

Current Long Positions (stop-losses in parentheses): QID (10.44), TWM (11.75) 

Current Short Positions (stop-losses in parentheses)ZQK (4.81)

BIAS: 21% Short (counts QID & TWM as a short)

Economic Reports Due Out (Times are EST): MBA Purchase Applications (7am), Challenger Job-Cut Report (7:30am), ADP Employment Report (8:15am), Treasury Refunding Announcement (9am), EIA Petroleum Status Report (10:30am)

My Observations and What to Expect:

Futures are flat prior to the open.

Asian markets were up well over 1.5% yesterday, while European markets saw mixed results. 

The market finally broke well above 1300 and closed at 1307 on the S&P yesterday, which is a 52 week high for the index and completely erases the losses that the market experienced on Friday. 

1275 represents the new higher-low in this market and the existing trend-line that has held back to 9/1. 

S&P is right back to trading above the 10-day moving average. 

Careful with the market at this stage, as it closed well outside the upper-bollinger band yesterday and the last six times dating back to August 2009, has resulted in strong selling pressures there after, usually within a two-day time frame. 

Similarities abound when comparing the market action of the last two weeks to what we saw back in April when the market topped. Action going forward has a high probability of being very volatile and choppy.

For the bears - Sell something...anything...

For the bulls - Consolidate at or near the highs over the next few days - it will be difficult to extend this rally much further in the very near term. 

My conclusion: Breaches beyond the upper bollinger band often invites profit taking in the short-term, and that adding a lot of new long positions to the portfolio here is dangerous. Let the markets calm down, and tighten the stops on the positions you already have. I don't have a strong belief in this market rallying again, like what we saw yesterday, until the market consolidates or pulls back first. 

Here Are The Actions I Will Be Taking:

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